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  • Non-compliance can cost businesses a lot of money. If you’ve read our posts before, you’ll know that the benefits of staying compliant are things that we’ve harped on before, but it’s worth repeating, especially when small business owners pay billions of dollars each year in payroll tax penalties. It’s especially true when it comes to something as problematic as multi-state payroll compliance.

    The problem with multi-state payroll compliance is that the rules you followed for your home state may not be the same as the other states where you do business. Each state has different payroll standards, meaning that you may not be nearly as compliant as you thought you were.

    Potential Multi-State Payroll Compliance Issues to Consider

    It can already be tricky to keep track of compliance needs, but adding multiple state locations just amplifies the issue. A few such areas of concern include:

    • Minimum wage
    • Income tax withholding
    • Leaves of absence regulations
    • Common ownership concerns
    • Workers Comp regulations

    We’ll use minimum wage as an example of just how quickly multi-state considerations can get out of hand. Let’s say that you’re a business based in Ohio that hires a lot of employees at minimum wage. If you have an operation in California, you’re going to be expected to pay California’s minimum wage of $10.50 an hour instead of Ohio’s $8.15 as of 2017, even if you’re mainly an Ohio-based business.

    While that may seem simple enough, there’s more. Twenty states increased their minimum wage rates at the beginning of this year. Also, you may not know that there are some cities and counties that observe different minimum wages than their state’s standard. For example, Cupertino, Calif. follows a $12 minimum wage as of Jan. 1, 2017, and they’re not alone. As of March 9, 2017, the U.C. Berkeley Labor Center lists 41 counties and cities across the country that observe a different minimum wage than the rest of their respective states.

    There are also other considerations than just the minimum wage, such as overtime pay rates. According to the Department of Labor, Minnesota’s basic minimum rate changes depending on whether your enterprise has annual receipts of more than or less than $500,000. While premium pay after designated hours kicks in after a 40-hour work week, it doesn’t kick in until after 46 hours in Kansas. Each state has their own specific differences that can create a huge problem for businesses who just based their payroll compliance on their home state.

    Avoid Payroll Compliance Issues Across Multiple States

    As you can tell, keeping track of payroll compliance across multiple states can be extremely complicated. It’s critical that you notify your payroll team about work situations in different states as soon as you can. That way whoever handles your payroll tax management can get a head start so that you can avoid costly non-compliance issues.

    If you’re a small business owner, there’s a chance that payroll compliance responsibilities fall on your shoulders, or on someone else who isn’t necessarily trained to handle payroll. If the thought of managing multi-state payroll compliance seems too intimidating, we’re happy to help.

    As a Professional Employer Organization, we have the experts you need for payroll tax management. Contact us today to talk with one of our experts about how multi-state compliance issues may affect your business and how we can help you stay compliant.

  • The first wave of minimum wage increases hit New Jersey employers July 1 after state legislators reached the deal earlier in the year. However, business owners need to prepare themselves for more than just this initial wage boost. Here’s what New Jersey employers need to know about New Jersey’s plan to raise the minimum wage to $15 – and why business owners across the country should pay attention.

    A small business owner accounting for increasing minimum wage.

    Breaking Down New Jersey’s New Minimum Wage Deal

    As of July 1, 2019, the minimum wage in New Jersey is now $10 per hour, but it won’t stay there. The new minimum wage deal instituted regular intervals for wage increases. The current $10 rate is set to increase to $11 starting Jan. 1, 2020. From there, it will go up by $1 every subsequent Jan. 1 until capping out at $15 in 2024.

    That’s not necessarily the end of any potential minimum wage increases, however. After 2024, any additional increases are “tied to the consumer price index for all urban wage earners and clerical workers, or CPI-W,” per NorthJersey.com. These changes would go into effect Jan. 1 of every year after 2024.

    Of course, there’s more to the new deal than just one set of minimum wage rollouts. There are some exceptions where certain types of workers will follow an alternative rollout. These include the following groups:

    Seasonal workers or employees with five or fewer workers

    The minimum wage rate is drawn out for these groups compared to the normal rollout. These types of employees are still currently at $8.85 per hour and follow a modified timeline.

    • $10.30 – Jan. 1, 2020
    • $11.10 – Jan. 1, 2021
    • $11.90 – Jan. 1, 2022
    • $12.70 – Jan. 1, 2023
    • $13.50 – Jan. 1, 2024
    • $14.30 – Jan. 1, 2025
    • $15 – Jan. 1, 2026
    • CPI-W-based increases plus parity to make up any remaining difference between standard minimum wage

    Tipped workers

    The take-home pay for these workers follows the same structure as the normal minimum wage rollout, although the how they’re paid is different. Tipped employees must receive at least minimum wage through the combination of salary and tips. The new rollout updates the salary floor for these workers accordingly:

    • $2.63 – July 1, 2019
    • $3.13 – Jan. 1, 2020
    • $4.13 – Jan. 1, 2021
    • $5.13 – Jan. 1, 2022
    • CPI-W-based increases starting 2025

    Agricultural workers

    Unlike other groups, agricultural workers will cap out at $12.50 before being tied to CPI-W. Like seasonal employees, these workers are still at $8.85 and follow an adjusted timeline

    • $10.30 – Jan. 1, 2020
    • $10.90 – Jan. 1, 2022
    • $11.70 – Jan. 1, 2023
    • $12.50 – Jan. 1, 2024
    • Any further changes depend on future wage raises

    How Employees Can Prepare for Minimum Wage Increases

    When it comes to minimum wage, there’s not much you can do as a business owner except prepare your business for the future. The first step for this is to convert your payroll every time minimum wage increases. If you don’t, the state of New Jersey can dole out fines of up to $1,000 and an “administrative fee equal to not less than 10 percent or more than 25 percent of any payment due to employees.”

    You’ll also need to evaluate how the slate of minimum wage increases affect your employees and what it will do to your profitability. This can mean planning out price adjustments for products and services over the next several years to account for the set wage increases. Meanwhile, you can potentially use the new rates to find better employees if you have the financial wiggle room to do so. Offering a little more than minimum wage may make your business more attractive and give you more interested candidates. From there, you can choose the best employees if you struggle to find good talent.

    Prepare for the Future with Proper HR Management

    The new minimum wage deal is a big change for business owners in New Jersey. However, employers outside of the state should also take notice. New Jersey, along with California and New York, serve as a sort of testing ground for changes like this. If the minimum wage increases do well in New Jersey, other states may look to adopt similar increases as well.

    Whether you own a business in New Jersey or some other state, it’s important to make sure you keep up with current and future legislature. As a Professional Employer Organization, GMS not only helps you stay compliant, we can save you time and stress by managing key business functions like payroll, benefits administration, and other important services.

    Ready to prepare your business for the future? Contact our New Jersey office or one of our many other locations today to talk to one of our experts about how we can help you make your business simpler, safer, and stronger.

  • It’s already difficult to manage payroll for a small business, but it can get even trickier if you have employees who work out of state. Whether you have remote employees, live near a border, or have any other reason for an employee to complete their work in a different state, there are certain rules set by the Department of Labor (DOL) and other federal and state agencies that you need to follow when handling payroll for those workers.

    A map of the U.S. for out-of-state employees with certain payroll requirements.

    Who is Considered an Out-of-State Employee?

    Identifying an out-of-state employee is pretty simple – it’s an individual whose primary work is completed outside of the state where your business is registered. However, the tax implications of out-of-state employees aren’t quite so simple.

    An employee’s resident state is where that person makes their permanent home. On the flip side, a nonresident state is any state where that employee commutes to or spends some time in for work. While it may be easy to assume that out-of-state employees live and work remotely in their resident state, that’s not necessarily the case. Any of the following workers count as an out-of-state employee.

    • Someone who lives and works in a state outside of your business’ registered state
    • Someone who lives in the same state as your business, but travels to and works in another
    • Someone who lives outside of your business’ state, but travels to a separate state and works there

    For example, let’s say your business is registered in Ohio and you have an employee who lives and works remotely in Florida. That individual is an out-of-state employee. However, let’s pretend that the employee lives right by the Ohio border and rents office space in the Buckeye state. In this case, the employee would technically be an in-state employee since he or she completes his or her primary work in Ohio, despite it not being the resident state. There’s also the case that if your employee lives in Ohio, but travels to and works in Michigan, that person is an out-of-state employee. 

    In general, an employee whose primary work is not in your business’ state is essentially an out-of-state worker. This makes it important to ask your employer where they perform the majority of their work – the answer will play a big role come tax time.

    Key Differences When Handling Payroll for Out-of-State Employees

    Once you’ve identified which of your employees qualify as out-of-state workers, it’s time to handle your payroll. When it comes to out-of-state employees, there are three big steps you need to take.

    Register with any necessary state tax agencies

    While your business is already registered in your home state, that’s not enough for employees in other states. You’ll need to register your business with the tax agency of every state where any official employees complete their primary work, whether that’s one additional state or several. 

    You’ll also need to check with that tax agency to see if you’ll also need to register with that state’s labor and unemployment agency. If not, that state government may come calling at some point, and they won’t be pleased.

    Follow the local laws of applicable states

    While you may understand all of your state’s laws regarding payroll policies, outside regulations can create a whole new challenge. There are several different pay and labor laws that can impact your out-of-state employees’ paychecks. As such, it’s important to make sure you look into several different areas to see if you need to modify your payroll.

    Minimum wage

    If you have out-of-state employees who make minimum wage, you’ll need to make sure that you don’t just follow your own state’s rate. For example, an out-of-state employee who works in Michigan is entitled to $9.65 an hour, so that person won’t be pleased if you pay them at Ohio’s $8.70 rate.

    Certain states also have special rules aside from flat rates or have plans to escalate rates over time. South Carolina has no state minimum wage law, but employers that fall under the Fair Labor Standards Act are required to use the federal rate of $7.25. New Jersey plans to increase its rate each year until it hits $15 per hour in 2026. If you have an employee in another state, you’ll need to pay close attention to the DOL’s updated list of minimum wage laws to make sure you don’t miss a special rule or accidentally get caught paying an old rate.

    Pay frequency

    Depending on where your employee works, he or she may have a different payday than the workers in your state. Certain states have set requirements on how often you should pay employees, while others give owners leeway into setting paydays, whether it’s weekly, monthly, or some other option. The DOL tracks each state’s payday requirements, including if employers need to provide written notice or seek permission for certain pay periods.

    Overtime

    There are states that simply observe the federal overtime rules, but others apply their own laws that can add an extra wrinkle to your payroll. Some states like California have daily overtime laws that kick in when employees work more than 12 hours in a day. Others may set different weekly hour requirements. In general, the DOL notes that if state and federal rules conflict with each other “the employee is entitled to overtime according to the higher standard.” Regardless, you’ll want to check with any applicable state labor office to get a definitive answer on your obligations.

    Workers’ compensation and disability insurance

    Like the other considerations, you’ll need to check with your employee’s state to see if it has any notable differences in purchasing workers’ compensation. Texas is the only state where workers’ compensation is optional, but other states can have some disparities from your local requirements. Some states, such as Ohio, require you to purchase insurance from a monopolistic state fund. Other states ramp up the penalties for not carrying workers’ compensation. Either way, check in with the official state organization to make sure your out-of-state employees are covered.

    There are also some locations that add some payroll requirements for disability insurance. Five total states require you to withhold state disability insurance from paychecks, which means you need to factor that into your calculations if you have an employee who works in the following places.

    • California
    • Hawaii
    • New Jersey
    • New York
    • Hawaii

    Paycheck delivery

    While the Fair Labor Standards Act (FLSA) requires that employers keep accurate records of every employee’s hours and wages, it does not require you to provide those employees with pay stubs. However, certain states have different standards for how employers need to deliver pay information. Depending on location, states may:

    • Have no requirements about providing pay information statements to employees.
    • Require employers to provide or furnish a statement of pay information that each employee can at least access electronically. The majority of states fall under this group.
    • Require employers to provide written or printed pay statements and give employees the ability to print electronic statements.
    • Give employees a chance to opt out of a paperless pay program and receive paper pay stubs.
    • Allow employees to opt-in to a paperless pay system if an employer wishes to offer one.

    In addition to paystubs, states can have differing rules on when you need to provide an employee’s final paycheck when he or she leaves or is terminated. As such, you’ll want to look up those terms if an out-of-state employee is no longer with your company.

    Withhold taxes based on your employee’s work location

    In addition to workers’ compensation, overtime, and other key considerations, withholding taxes plays a major part in managing payroll. Depending on where employees work, you may need to withhold state and local income taxes from their paychecks if it’s required in your employee’s city or county. 

    As you’d expect, your withholding responsibilities depend on where your employee works. Seven states don’t have income taxes or only have them on dividend and interest income. As such, you wouldn’t need to withhold income taxes for an out-of-state employee who works in Florida or any of the other six states. As a bonus, you also won’t need to register with the tax agencies for states where you don’t withhold income tax.

    There are also 16 states that require employers to withhold local taxes in addition to income taxes. As such, you’ll need to research and withhold both taxes from paycheck based on that state’s rates.

    Reciprocal states

    If that doesn’t sound tricky enough, some states have tax reciprocity. Essentially, reciprocal states have agreements in place with other specific states that allow employers to withhold taxes based on the state of residence instead of where an employee works. As such, an employee can give you a reciprocal withholding certificate if they wish to request you withhold taxes for their home state instead of the work state if both locations have an agreement in place.

    Here’s a breakdown of existing reciprocal tax agreements, listed by an employee’s home state in bold. (Note: People who work in the District of Columbia can live in any state) 

    • Illinois – Iowa, Kentucky, Michigan, Wisconsin
    • Indiana – Kentucky, Michigan, Ohio, Pennsylvania
    • Iowa – Illinois
    • Kentucky – Illinois, Indiana, Michigan, Ohio, Wisconsin, West Virginia
    • Maryland – District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
    • Michigan – Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin
    • Minnesota – Michigan, North Dakota
    • Montana – North Dakota
    • New Jersey – Pennsylvania
    • North Dakota – Minnesota, Montana
    • Pennsylvania – Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
    • Ohio – Indiana, Kentucky, Michigan, Pennsylvania, West Virginia
    • Virginia – District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
    • Wisconsin – Illinois, Indiana, Kentucky, Michigan
    • West Virginia – Kentucky, Maryland, Ohio, Pennsylvania 

    Feeling Overwhelmed? Simplify Your Payroll with GMS

    Whether you need to plan for out-of-state employees or simply need to manage payroll for your in-state office, the process is a lot of hard work. There’s also the issue that even after investing a lot of time in payroll, a simple mistake or two can lead to upset employees and non-compliance issues with various federal and state agencies.

    If you’re fed up with the time and stress involved with managing payroll, GMS can help. As a PEO, our experts can manage your company’s payroll, decreasing your workload and liabilities so you can focus on growing your business instead of calculating paycheck deductions.

    Ready to free up your calendar while streamlining critical HR functions? Contact us today to talk to one of our experts about your company’s HR needs.